What Is EMC Up to by Buying Legato?

EMC's bid to acquire Legato Software Tuesday for $1.3 billion has caught the attention of analysts that follow the sector and has quelled debate over whether or not the deal, rumored as far back as a year, would happen.

Now that it has, a different debate has arisen. While most analysts have lauded the deal, EMC rivals are questioning the Hopkinton, Mass.-based company's strategy of becoming a large software maker through acquisitions like Legato and BMC's storage software line last week.

The crux of the Legato deal is that EMC will fold in Legato's e-mail archiving, information protection and recovery, and additional storage management solutions to boost its own storage software lines. The push comes as competitors such as VERITAS , IBM , HP , Computer Associates , and Sun Microsystems strive to augment their own storage software solutions.

The expansion of EMC's software lines is part of a company-wide, full-court press on information lifecycle management (ILM), which is also referred to as data lifecycle management by some companies. The strategy involves the ability to manage data from "cradle to grave," in industry parlance, from the moment data is created or received, to when it is tucked away in an archive, and finally to when it is expunged from the network.

With the passage of the Sarbanes-Oxley legislation in Congress, corporations are now taking greater interest in making sure digital documents are preserved in order to comply with accounting standards in the bill, which was sparked by a wave of corporate accounting scandals in the last few years.

The heightened interest could prove to be good timing for the Legato products that EMC gets in the deal, which include Disk Extender (DX) and Email Extender (EX). Legato possesses this disk and e-mail archiving technology thanks to its own acquisition
of OTG for $403 million last year. Now, along with Legato's homebrewed backup-and-recovery products like NetWorker and management tools such as
AlphaStor, EMC is expected to reap the products' rewards.

Analysts Weigh In on the Deal

Analysts are speaking favorably of the deal between EMC and Legato, and note that some competitors could be affected more than others.

"I think this is a really good deal for EMC; if they successfully integrate the Legato products with their own solutions, they will have a true Enterprise
Storage Management portfolio, which requires tools that do asset and performance management, automated data valuation and migration, and backup and recovery," says Enterprise Storage Group Senior Analyst Nancy Marrone. "Each piece is needed for full ILM functionality, and EMC didn't have some significant pieces before this acquisition."

Marrone's colleague, Enterprise Storage Group Senior Analyst Peter Gerr, believes the deal gives Legato, an independent software vendor, longer term
viability for their backup products. "I think they had done most of what they could have done in the backup world &8211; their play towards a more open software framework a few years ago (GEMS) hasn't really borne fruit, and I think they continue to struggle against bigger companies (VERITAS, IBM, CA) that might or might not have 'better' backup solutions, but they're 'good enough.'"

Gerr says buying Legato less than a week after picking up BMC's storage software assets gets EMC's "software feet on the street," meaning software, sales and marketing, and development staff are in place where they were lacking before.

"It's becoming more and more clear that EMC has acquired a good amount of software intellectual property with the other smaller companies it has acquired, and is now building the go-to-market strategy to launch itself into being a 'software company.' It would have taken too long to build that organically," says Gerr.

"For enterprise systems vendors that are pursuing their own storage software strategies, the EMC/LEGATO deal means that an already tough opponent has gotten measurably tougher," King said in a research note. "The combination of capabilities offered by EMC/LEGATO is well able to go toe-to-toe with IBM/Tivoli's storage solutions, and leaves HP's own storage software products looking somewhat anemic in comparison."